Congressional Democrats say they aren't willing to consider changes in Social Security in order to avoid the "fiscal cliff."  On Sunday, November 25, 2012, Senator Dick Durbin (D-IL), on ABC's This Week, said, "Social Security does not add one penny to the deficit.  Not a penny.  It's a separate funded operation, and we can do things that I believe we should now, smaller things, played out over the long term that gives it solvency."  Durbin also said that Social Security needs only a few minor tweaks, but no major reforms to ensure its long-term solvency.  And, Rep. Xavier Becerra (D-CA), at a recent hearing by the House Ways and Means Social Security subcommittee, said, "Over 77 years and now through 13 recessions, Social Security has not added one penny to our deficit or our debt."

What Durbin and Becerra said about Social Security not adding to the deficit may be, for now, technically true, but "Social Security shortfalls are [indirectly] adding to the federal budget deficit[.]"  For almost thirty years, Social Security collected more in taxes than it paid in benefits, thus producing surpluses.  The surpluses were "invested" in special interest (2.417 percent in 2011)-bearing bonds issued by the Treasury Department to Social Security.  The special bonds formed what has become known as the "Social Security Trust Fund," amounting to $2.7 trillion.  That's all well and good, but (and there's always a "but")...

The government (both parties) "borrowed" from the trust fund in order to pay for other programs that, if paid for in the yearly budget, would have raised the deficit.  Thus, borrowing from the trust fund became a way to hide deficit spending increases.  Social Security itself does not directly increase the deficit, but the money collected in the name of Social Security certainly has an effect on the deficit.  And what of the Trust Fund now?  It is a myth, even though Durbin and Becerra continue to insist otherwise.

Social Security is presently paying more in benefits than it collects in taxes.  As baby-boomers leave the work force, the problem will only increase.  Benefit expenses will exceed tax receipts and then, after several more years, will exceed all system income, including interest.  The Social Security Trust Fund (you remember, that $2.7-trillion myth) is expected, depending on whom you believe, to go broke in 2041 (Social Security Administration, see Figure II.D7. - Long-Range OASDI Trust Fund Ratios From Stochastic Modeling) or 2033 (Congressional Budget Office).  Durbin and Becerra will both be long gone when either date rolls around, leaving our children and grandchildren to "hold the bag."  Their "Social Security doesn't raise the deficit" speeches may, for now, be technically correct, but what about in a few years?

So what can be, or could have been, done?  Simpson-Bowles?  Officially, this is "The National Commission on Fiscal Responsibility and Reform," named after co-chairs Alan Simpson and Erskine Bowles.  The commission recommended (among other things) that the retirement age for Social Security be raised, that the Social Security payroll tax be raised, and that entitlements be reduced.  Not surprisingly, the commission failed to achieve the necessary 14-vote supermajority required to officially endorse the plan.  About the Social Security retirement age raise recommendation, Paul Krugman (noted liberal and Obama supporter) called the recommendation "classist."  He said:

And it raises the Social Security retirement age because life expectancy has risen - completely ignoring the fact that life expectancy has only gone up for the well-off and well-educated, while stagnating or even declining among the people who need the program most.

But Krugman somehow manages to ignore who pays the bulk of Social Security taxes.

And, alas, as Treasury Secretary Timothy Geithner explained in February 2012, President Barack Hussein Obama could not embrace the Simpson-Bowles committee recommendations because "... the reforms to Social Security relied too much on benefit cuts."

Randall Hoven gave a very good analysis of what we can expect from Congress concerning the fiscal cliff, and why Simpson-Bowles is our only hope to avoid the fiscal cliff.  Simpson-Bowles, though far from perfect, is, as Hoven points out, preferable to any alternatives.  Plus, because it is bipartisan in nature, it has a "chance" of being passed.

By the way, under sequestration (an attempt to control the budget), Social Security is exempt from any deficit reduction cuts.  But if Durbin and Becerra were completely truthful, then why was Social Security added to the sequestration cuts exempt list?  Is there an inconsistency here?  While Durbin and Becerra were truthful, they did not tell, as Paul Harvey used to say, "the rest of the story."

The U.S. is about to go over a fiscal cliff.  It's time that Democrats stop hiding behind technicalities, stop buying votes, and admit to economic reality.  But the problem is, of course, that a majority of the general public believes Durbin and Becerra, never looking for or at what is coming to both Social Security and the U.S. deficit.

Dr. Beatty earned a Ph.D. in quantitative management and statistics from Florida State University.  He was a (very conservative) professor of quantitative management specializing in using statistics to assist/support decision-making.  He has been a consultant to many small businesses and is now retired.  Dr. Beatty is a veteran who served in the U.S. Army for 22 years.  He blogs at rwno.limewebs.com.